How does Fancy use Apple In-App-Purchases? Apple's TOS says this isn't allowed?

Not knowing exactly the violation you are speaking of, there could be two possible reasons for this:

1. Apple is aware of the alternative use of their platform and allows Fancy to use their system in a method that violates their TOS because of the volume of transactions and their communications with Apple.

2. Apple has not yet detected the violation and/or the violation has not been reported to Apple.